Responsible researcher: Eduarda Miller de Figueiredo
Author: Silvia Prina
Paper title: Banking the poor via savings accounts: Evidence from a field experiment
Intervention Location: Nepal
Sample Size: 1,118 households
Sector: Financial
Variable of Main Interest: Monetary assets, non-monetary assets and total assets
Type of Intervention: Offering a savings account with minimal transaction costs
Methodology: Random experiment
Poor families often do not have access to formal financial services, such as a savings account, making it necessary to adopt expensive and riskier alternative strategies to save money. By conducting a randomized experiment with poor families in the slums of Nepal, it was observed that access to a savings account with minimal transaction costs, i.e. zero fees and physical proximity to a local bank branch, can help poor families manage improve your resources. Therefore, it is suggested that basic savings accounts positively affect the behavior of these families.
Poor people are willing and able to save, but do not have access to savings accounts or banking services of any kind (Demirguc-Kunt and Klapper, 2012). Thus, they save informally, that is, they keep money at home, buy livestock and durable goods (Rutherford, 2000; Dupas and Robinson, 2013). The literature has also pointed out that providing access to financial services for the poor appears to increase income and reduce poverty (Aportela, 1999; Bruhn and Love, 2009).
The author's objective in this study was to examine the impact of offering a savings account with minimal transaction costs, i.e., zero fees and high proximity to a bank branch. Since, according to the literature, by reducing transaction costs and improving trust in banking institutions, there is an increase in the use of money-saving products by poor families (Karlan et al., 2014).
A comparison of the savings account feature with accounts offered in other interventions demonstrated that poor households appear to value a savings product that is associated with low transaction costs. The distance from the bank branch was mentioned by Brune et al (2014) as one of the reasons for the low use of a savings account. Furthermore, Banerjee and Duflo (2011) suggest that high fees also discourage use.
Formal financial access in Nepal is very restricted, where 26% of families have a bank account. This access is concentrated in urban and rich areas. The main reasons reported in the national survey for the lack of a bank account are transaction costs, distance from banking institutions and complicated deposit and withdrawal procedures. Only 37% of families who had an account and had savings in the previous year declared that they had deposited money in the account (Ferrari et al., 2007).
The experiment took place in 19 slums around Pokhara [1] , which are located on the outskirts of the city or in semi-rural and rural areas, which are further away. Only 17% of households in the sample used in the study have a bank account. Families in the sample earn, on average, $3 per day. 18% of the sample were members of a Revolving Savings and Credit Association (ROSCAs) [2] and 54% belonged to a microfinance institution or savings cooperative at the beginning of the study.
A baseline survey was carried out in May 2010 in each location, with all women aged 18-55 participating in the survey, totaling 1,118 families. In both the initial survey and the final survey in June 2011, there was information on household expenses to help understand the role played by supply and demand factors in explaining account acceptance and use.
Administrative data from the GONESA bank, which is a non-governmental organization (NGO) that operates in the studied area, on the use of savings accounts were also used. Such data includes date, branch location, amount of each deposit and withdrawal, and reason for withdrawal from all treatment group accounts.
The families in the sample are highly vulnerable to shocks, where 41% of families indicated having had a negative shock in external income during the previous month and 43% dealt with loans, 17% from family and friends, 17% from a loan shark and 9% from other sources.
Of the total number of households that were included in the survey, 567 women were randomly assigned to the treatment group, receiving the option of opening a savings account at a local bank branch. The control group was not given this option.
The sample therefore includes families with female heads who were, on average, 37 years old. On average, they had less than 3 years of schooling, 90% of respondents were married or lived with a partner and the average family size was 4-5 people. Weekly family income averaged about $24.
Therefore, of the 1,118 households included in the final sample and of the 567 that had the opportunity to open a savings account, 84% opened the account and 80% actively used it. Where it was considered to actively use the fact of having at least 2 deposits in the first year after offering the account.
Intention-to-treat (ITT) effects were estimated, where the main dependent variables are monetary assets, non-monetary assets and total assets. Some basic characteristics were included for control and village fixed effects because randomization occurred within the village.
The results demonstrated that acceptance and active use of the account are positively related to having a bank account and negatively related to obtaining income from an entrepreneurial activity. Furthermore, the majority of transactions made during the study period were deposits, where the average amount deposited in a week was about 8% of the average weekly household income.
The administrative database demonstrated that the main reasons for withdrawing money were to pay for a health emergency (17%), to buy food (17%), to pay a debt (17%), to pay school fees and materials (12 %) and to pay festival expenses [3] (8%). The estimation results demonstrated a positive effect of gaining access to a savings account on monetary assets.
The average effect of being assigned to the treatment group on the amount spent by the household on health, education, meat and fish, festivals and ceremonies, dowries and other expenses was estimated. The results demonstrated that financial access has a positive and statistically significant effect on expenditure on education, meat and fish, and festivals and ceremonies. Where families in the treatment group spent, on average, 20% more on education than families in the control group. Furthermore, the regression results showed higher investments in human capital for the treatment group than for the control group.
Overall, if granted access to a basic account with minimal transaction costs, poor households use it with high frequency. Where access to a savings account appears to help poor families better manage their resources, thus improving their financial situation.
Reference
PRINA, Silvia. Banking the poor via savings accounts: Evidence from a field experiment. Journal of development economics , vol. 115, p. 16-31, 2015.
[1] Second largest city in Nepal.
[2] Rotating Savings and Credit Associations (ROSCAs).
[3] Teej festival; Dashain festival, Tihar festival, Maghe Sankranti, New Year according to Nepal calendar and Dumji festival.
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